SQE 1: Business Law & Practice CRYPT SHEET
Contents
1. Introduction to Business Law and Practice
2. Partnerships and LLPs
3. Company formation
4. Directors’ duties and responsibilities
5. Shareholders’ rights and remedies
6. Equity finance
7. Individual taxation
8. Corporate taxation
9. Business accounts
10. Debt finance
11. Corporate insolvency
12. Personal insolvency
13. Voidable transactions and directors’ liabilities in insolvency
, 1. Introduction to Business Law and Practice
Factors influencing the choice of business structures:
Costs Both set up + ongoing?
Time Can the business start trading immediately? Is there a lot of admin?
Risk Does the business model minimise risk?
Privacy Is public disclosure required? (finances, name, address etc.)
Finance How can the business raise money?
, 2. Partnerships and LLPs
Traditional Partnerships
- Partnerships are governed by the Partnership Act 1890.
A partnership can be formed w/o any legal formality = cheap to set up!
- ‘A relationship between persons carrying on a business in common w/ a view to making a
profit’ (s. 1(1) PA 1890)
Minimum 2 persons – PA 1890 does not distinguish between actual and legal persons, so a
company can be a partner!
NO intention required – existence is determined on the facts.
Profit sharing = prima facie but not necessarily conclusive evidence (s 2(3) PA 1890).
ALL individuals taking part in decision making = more likely to be a partnership
Loan of money does NOT create a partnership
NOT being ‘held out’ as a partner = less likely to be a partnership
Partnerships are NOT a separate legal entity to its partners.
LIABILITY
Partners - Joint liability in contract (s 9)
- Joint & several liability in tort (ss 10 & 12) – creditor obtaining judgment
against one/some doesn’t discharge others!
New s 17(1): a new partner = not automatically liable for debts incurred before
partners (s
17 PA 1890) s 17(2): a partner will still be liable after they retire for debts incurred whilst they
were a partner – must novate the relevant agreement w/ the consent of the
creditor (s 17(3)) to relieve them of their liability!
Former Third party can treat all apparent partners of the firm as jointly liable for a new
partners (s debt UNLESS that third party has been notified of this change either by:
36 PA 1890)
® actual notice (s 36(1)) - actual dealings
® constructive notice - publication in the London Gazette (s 36(2))
KEY: Not liable if third party did NOT know them to be a partner - no notice!
‘Holding A non-partner may be personally liable on a partnership debt if they have held
out’ (s 14 PA themselves out as a partner (or knowingly allowed themselves to be).
1890)
i. a representation to a third party to the effect that a person is a partner,
ii. the third party's action in response (‘giving credit to the firm’, eg by
supplying goods or services to the firm), and
iii. the third party's state of mind (‘believing (having faith in) the
representation’).
CONTRACTS BINDING THE FIRM:
, KEY: Whether firm is bound by a particular contract depends on whether they are a partner
(see s 5 PA 1890) OR non-partner (common law rules of agency)
Partner’s content with agent’s act
Whether partner or non-partner, firm is BOUND either because (1) individual has either
actual/express/implied authority, OR (2) partners later ratify agent’s act and adopt contract
Partners not content with agent’s act
(a) Partner (s 5 PA 1890) (b) Non-partner (apparent authority)
Unauthorised act will bind the firm, if (1) for Common law rules of agency APPLY:
business of the kind + (2) in the usual way
Binds the firm if he has apparent
NOT bound if: (‘ostensible’) authority - arises when
® third party actually knew the partner was principal represents/permits a
not authorised; or representation to be made to a third
® the third party did not know/believe that the party that a person has authority to
partner was a partner. bind the firm.
o e.g. person held out as a partner
N.B. Partner may be liable to other partners for has apparent authority
breach of contract.
© Conducting business through a partnership allows for a high degree of confidentiality
regarding the business’s affairs.
© Partnerships are tax transparent: the partners themselves pay income tax and capital gains
tax on their share of profits and gains.
Partnership agreement
Partners are strongly advised to set out their rights and obligations in an express written
partnership agreement – if there is no agreement or the agreement is silent, the default
provisions in PA 1890 apply:
Commencement Partnership commences when s 1(1) PA 1890 is satisfied - fixed term or
and duration may continue until terminated in accordance w/ its provisions.
If the agreement has a fixed term but the partners AFTER
expiration, they are presumed to be partners on the same terms as
before (s 27).
Partnership Each partner owns a share in the property belonging to the partnership – but
property have NO right to any particular partnership asset.
(ss 20 – 21 PA s 20 PA 1890: includes ALL property brought into the partnership on
1890) account of, for the purposes and in the course of the partnership business
s 21 PA 1890: includes ALL property bought with money belonging to
the firm/partnership unless the contrary intention is shown.
Shares in S.24(1) Profits: partners share equally in the profits of the business even
income & where the parties have contributed to the capital unequally (unless there is
Contents
1. Introduction to Business Law and Practice
2. Partnerships and LLPs
3. Company formation
4. Directors’ duties and responsibilities
5. Shareholders’ rights and remedies
6. Equity finance
7. Individual taxation
8. Corporate taxation
9. Business accounts
10. Debt finance
11. Corporate insolvency
12. Personal insolvency
13. Voidable transactions and directors’ liabilities in insolvency
, 1. Introduction to Business Law and Practice
Factors influencing the choice of business structures:
Costs Both set up + ongoing?
Time Can the business start trading immediately? Is there a lot of admin?
Risk Does the business model minimise risk?
Privacy Is public disclosure required? (finances, name, address etc.)
Finance How can the business raise money?
, 2. Partnerships and LLPs
Traditional Partnerships
- Partnerships are governed by the Partnership Act 1890.
A partnership can be formed w/o any legal formality = cheap to set up!
- ‘A relationship between persons carrying on a business in common w/ a view to making a
profit’ (s. 1(1) PA 1890)
Minimum 2 persons – PA 1890 does not distinguish between actual and legal persons, so a
company can be a partner!
NO intention required – existence is determined on the facts.
Profit sharing = prima facie but not necessarily conclusive evidence (s 2(3) PA 1890).
ALL individuals taking part in decision making = more likely to be a partnership
Loan of money does NOT create a partnership
NOT being ‘held out’ as a partner = less likely to be a partnership
Partnerships are NOT a separate legal entity to its partners.
LIABILITY
Partners - Joint liability in contract (s 9)
- Joint & several liability in tort (ss 10 & 12) – creditor obtaining judgment
against one/some doesn’t discharge others!
New s 17(1): a new partner = not automatically liable for debts incurred before
partners (s
17 PA 1890) s 17(2): a partner will still be liable after they retire for debts incurred whilst they
were a partner – must novate the relevant agreement w/ the consent of the
creditor (s 17(3)) to relieve them of their liability!
Former Third party can treat all apparent partners of the firm as jointly liable for a new
partners (s debt UNLESS that third party has been notified of this change either by:
36 PA 1890)
® actual notice (s 36(1)) - actual dealings
® constructive notice - publication in the London Gazette (s 36(2))
KEY: Not liable if third party did NOT know them to be a partner - no notice!
‘Holding A non-partner may be personally liable on a partnership debt if they have held
out’ (s 14 PA themselves out as a partner (or knowingly allowed themselves to be).
1890)
i. a representation to a third party to the effect that a person is a partner,
ii. the third party's action in response (‘giving credit to the firm’, eg by
supplying goods or services to the firm), and
iii. the third party's state of mind (‘believing (having faith in) the
representation’).
CONTRACTS BINDING THE FIRM:
, KEY: Whether firm is bound by a particular contract depends on whether they are a partner
(see s 5 PA 1890) OR non-partner (common law rules of agency)
Partner’s content with agent’s act
Whether partner or non-partner, firm is BOUND either because (1) individual has either
actual/express/implied authority, OR (2) partners later ratify agent’s act and adopt contract
Partners not content with agent’s act
(a) Partner (s 5 PA 1890) (b) Non-partner (apparent authority)
Unauthorised act will bind the firm, if (1) for Common law rules of agency APPLY:
business of the kind + (2) in the usual way
Binds the firm if he has apparent
NOT bound if: (‘ostensible’) authority - arises when
® third party actually knew the partner was principal represents/permits a
not authorised; or representation to be made to a third
® the third party did not know/believe that the party that a person has authority to
partner was a partner. bind the firm.
o e.g. person held out as a partner
N.B. Partner may be liable to other partners for has apparent authority
breach of contract.
© Conducting business through a partnership allows for a high degree of confidentiality
regarding the business’s affairs.
© Partnerships are tax transparent: the partners themselves pay income tax and capital gains
tax on their share of profits and gains.
Partnership agreement
Partners are strongly advised to set out their rights and obligations in an express written
partnership agreement – if there is no agreement or the agreement is silent, the default
provisions in PA 1890 apply:
Commencement Partnership commences when s 1(1) PA 1890 is satisfied - fixed term or
and duration may continue until terminated in accordance w/ its provisions.
If the agreement has a fixed term but the partners AFTER
expiration, they are presumed to be partners on the same terms as
before (s 27).
Partnership Each partner owns a share in the property belonging to the partnership – but
property have NO right to any particular partnership asset.
(ss 20 – 21 PA s 20 PA 1890: includes ALL property brought into the partnership on
1890) account of, for the purposes and in the course of the partnership business
s 21 PA 1890: includes ALL property bought with money belonging to
the firm/partnership unless the contrary intention is shown.
Shares in S.24(1) Profits: partners share equally in the profits of the business even
income & where the parties have contributed to the capital unequally (unless there is
